For the first time in years, investors are giving oil and gas producers another look.
Years of underperformance left energy stocks sitting out much of the market’s rally. The S&P 500 Energy Index is up around 4% since 2022, while the S&P 500 has climbed nearly 80%. Range-bound oil prices and years of underperformance kept buyers on the sidelines.
And as tech stocks face selling pressure, energy is suddenly one of the market’s cheapest and intriguing opportunities.
A Sector Investors Are “Kicking the Tires” On
Analysts point to valuation first. Energy is now the lowest-priced sector in the S&P 500 on a forward earnings basis, a compelling setup for investors searching for diversification outside AI and software.
Adam Turnquist, vice president and chief technical strategist at LPL Financial, says clients are beginning to revisit the group.
“People are kicking the tires on this sector now, they’re looking for diversification outside of AI,” he noted, adding that energy is breaking through key technical levels with market-leading breadth. “There’s more upside than expected.”
The shift didn’t happen overnight. Energy stocks have rallied 19% since their April 8 low, with 77% of S&P 500 energy companies now trading above their 200-day average.
While that would normally be a sign of overheating, the sector’s long-term sluggishness softens the signal.
This is still a recovery, not a peak.
In the November pullback when tech and other momentum names were hit hardest, money flowed into value plays. The State Street Energy Select Sector Fund (XLE) saw its first net inflow in a year and its largest since mid-2024.
Quiet as it may be, energy has been the second-best performer of all 11 S&P sectors over the last two months.
Matt Maley, chief market strategist at Miller Tabak + Co., believes the recent performance deserves more attention.
“After two months, people need to pay attention,” he said, noting that Exxon Mobil’s latest guidance shows that even with oil stuck near $50–$60, major producers continue to generate enormous cash flow. “It’s over hated and underweighted.”
Still, some analysts remain caution on the longer-term outlook, especially for oil.
Stacey Morris, head of energy research at VettaFi, notes, “People are still very cautious into 2026, given a really bearish outlook for oil – it seems like we’re still going to have this supply overhang,”
But Morris is more upbeat on natural gas.
Gas-tracking ETFs have seen four straight months of positive inflows, the strongest streak since 2022, supported by improving commodity prices and rising investor interest.
This divergence between oil and gas outlooks could shape where energy-sector capital flows next.
Is the Sector Ready for an Upgrade?
Strategists are not rushing to raise their views just yet, noting that fundamentals will need to strengthen for the rally to carry much further. Hugo Ste-Marie of Scotiabank said in a recent note that “fundamentals will have to get better for the rally to extend much longer.”
Still, sentiment is shifting. LPL Financial’s Turnquist raised energy to “neutral” earlier this year after a multi-year underweight stance, saying “we’re becoming increasingly optimistic.”
If earnings improve and cash flows remain strong, energy may finally stage a comeback in core portfolios.
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